USD/TRY: It is all about geopolitics and Trump’s stance – Danske Bank

Danske Bank forecast the USD/TRY pair at 5.77 (1-month), 5.90 (3M), 6.10 (6M) and 6.20 (12M). They expect GDP growth in Turkey to contract 2.0% in 2019 and to expand 1.7% in 2020.  

Key Quotes:  

“The TRY has been far from its lowest levels seen earlier in 2019, despite Turkey’s military operation in Syria causing negative reaction among EU and US politicians. Yet, as US President Donald Trump and the US Treasury Department are not introducing sanctions against Turkey’s financial sector, we see that the risk of a TRY collapse is marginal.”

“Decelerating inflation and a dovish central bank fuel hopes for economic stabilisation and growth in 2020. We expect marginal strengthening of the TRY versus the USD in Q4 19 as we believe the US Fed will stay rather dovish. Large FX debt redemptions by the Turkish private sector, possible crude price shocks and weak economic activity combined with double-digit inflation are set to continue weighing on the TRY in the long-term.”

“Major downside risks to our TRY forecasts include hawkish Fed, renewed political pressure on the TCMB, further escalation of the trade war and geopolitical confrontation with the US on Turkey’s military operations in Syria.”